2024 (5) TMI 1629 - HC - Income Tax

s.149 limits s.148 notice to three years unless escaped tax exceeds Rs.50 lakh; noncompliance with s.148A invalidates reassessment

HC held that the limitation in s.149 for issuance of notice under s.148 is three years except where escaped tax exceeds Rs.50 lakhs. Here the total ... Reopening of assessment u/s 147 - time-limit for notice u/s 149 - scope of new regime - effect of TOLA - HELD THAT:- As far as the notice u/s 148 and Section 148A is concerned, the issue is covered by the judgments of this Court referred to above. It was categorically found that Section 149 provides for a time-limit for notice to be issued u/s 148 which under clause (a) of Sub-section (1) is three years. A limitation of 10 years is provided only for escaped assessment where the tax escaped is more than Rs. 50 Lakhs. In the present case admittedly the total assessment is only of Rs. 31 lakhs and the demand now raised is slightly more than Rs. 19 lakhs. Insofar as Section 148A it was brought into the Act by Finance Act, 2021 with effect from 01.04.2021 when Section 148 also stood substituted. Section 148A deals with the enquiry and opportunity provided before issuance of notice under Section 148 but under the very same Finance Act, 2021. The limitation period provided under Section 149 was also amended and it was brought down to three years where the escaped assessment is of less than Rs. 50 lakhs. As decided in Union of India Vs. Ashish Agrawal [2022 (5) TMI 240 - SUPREME COURT] dealt with the issue of notices, not in consonance with the amendments brought about by Finance Act, 2021. It was noticed that the Revenue has issued approximately 9000 re-assessment notices to the respective assessees, post 01.04.2021, but under the erstwhile Sections 148 to 151, by relying on the Explanations in the notifications dated 31.03.2021 and 27.04.2021. It was held that the new provisions substituted by the Finance Act, 2021 were remedial and benevolent in nature; substituted with a specific aim and object to protect the rights and interest of the assessees. The same was also in public interest and by virtue of the judgment of various High Courts, there would be no reassessment proceedings if the benevolent provisions of Finance Act, 2021 is applied across the board. It was only in such circumstances that the judgments in appeal before the Hon’ble Supreme Court were modified and substituted, specifically providing for the Assessing Officers who had issued notices post 01.04.2021, without following the procedure under Section 148A to provide the respective assessees information and material relied upon by the Revenue within thirty days so that the assessees can reply to the show cause notices within two weeks thereafter. The judgment of the Hon’ble Supreme Court is dated 04.05.2022 and in that circumstances every noticee/assessee should have been supplied the information and material relied upon by the Revenue within thirty days. Here the notice under Section 148A was issued on 23.06.2022 after almost a year from the date provided by the Hon’ble Supreme Court. No way to permit the re-assessment under Section 148 to be continued. ISSUES PRESENTED AND CONSIDERED 1. Whether the reassessment proceedings initiated under Section 148 of the Income Tax Act are time-barred in view of the limitation provisions in Section 149 as amended by the Finance Act, 2021. 2. Whether the substitute provisions introduced by the Finance Act, 2021 (including Sections 148A and amended Section 149) apply to notices issued after 01.04.2021 and, if so, whether non-compliance with the procedures under Section 148A vitiates reassessment notices issued post-amendment. 3. Whether the remedial and benevolent character of the Finance Act, 2021 amendments and the remedial directions issued by the apex court require supply of information and material relied upon by the Revenue within thirty days and, if such directions are not followed, whether reassessment can be permitted to continue. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Time-bar under amended Section 149 (Limitation for issuing notice under Section 148) Legal framework: Section 149 prescribes time-limits for issuance of notice under Section 148; after the Finance Act, 2021 the general time-limit for initiation was reduced to three years except in cases of escaped income exceeding a statutory monetary threshold (ten-year period applicable only where escaped tax exceeds the specified amount). Precedent treatment: The Court follows prior high court decisions interpreting Section 149 post-amendment to construe the three-year limitation for matters below the monetary threshold; those decisions are applied to the facts of the instant matter. Interpretation and reasoning: The Court notes that a notice under the pre-amendment Section 148 was issued within the erstwhile four-year window but subsequent notices rely on post-amendment provisions and time-limits. The admitted figures show total assessment and demand are below the monetary threshold that would permit the extended ten-year period. Consequently, the three-year limitation under amended Section 149 governs. Ratio vs. Obiter: Ratio - Where the escaped assessment falls below the statutory monetary threshold, the three-year limit of amended Section 149 applies and reassessment notices issued beyond that period are barred. Obiter - Observations about the interplay of pre- and post-amendment notices in other factual permutations. Conclusion: Reassessment proceedings cannot be sustained under the extended ten-year provision because the escaped income/demand does not meet the monetary threshold; therefore limitation under amended Section 149 precludes reassessment in the present factual matrix. Issue 2 - Applicability of Finance Act 2021 provisions (Section 148A) to notices issued after 01.04.2021 and effect of non-compliance Legal framework: Finance Act, 2021 introduced Section 148A creating a pre-notice enquiry requirement and amended Section 148/149 to alter both procedure and limitation; Section 148A contemplates supply of information and an opportunity before issuing a Section 148 notice. Precedent treatment: The Court relies on the apex court's treatment that the substituted provisions are remedial and benevolent, intended to protect assessees' rights and public interest; high court decisions applying these principles to post-amendment notices are followed. Interpretation and reasoning: The Court reasons that where reassessment notices are issued post-amendment without adherence to Section 148A's procedural safeguards, the notices are vulnerable. The remedial intent of the amendments requires strict compliance with the pre-notice enquiry and opportunity provisions; failure to follow the statutory procedure undermines the validity of subsequent Section 148 proceedings. Ratio vs. Obiter: Ratio - Non-compliance with Section 148A (the pre-notice enquiry and opportunity requirement) in the issuance of a Section 148 notice post-amendment renders the notice unsustainable. Obiter - Discussion of administrative burdens arising from large-scale issuance of reassessment notices when transitional steps are not properly implemented. Conclusion: The substituted provisions of the Finance Act, 2021 apply to notices issued after 01.04.2021; where Section 148A procedure is not complied with, reassessment cannot be permitted to continue. Issue 3 - Effect of apex court directions concerning supply of information/material and temporal compliance Legal framework: The apex court recognized the remedial nature of the 2021 amendments and, in cases where notices were issued post-amendment without following the new procedure, required that assessees be supplied with the information/material relied upon by the Revenue within thirty days and be given an opportunity to reply. Precedent treatment: The Court applies the apex court's directions as binding guidance on temporal compliance - specifically the thirty-day supply of information and subsequent short window for reply - to ensure fairness where reassessment notices were issued without following Section 148A. Interpretation and reasoning: The Court observes that the apex court's order envisaged prompt compliance by Revenue to cure defects in post-amendment notices and to protect assessees' rights. In the present case, the Section 148A notice was issued considerably later than the period contemplated by those directions, and no timely supply of information/material as mandated was made. Given the delay and non-compliance, the rationale for permitting reassessment is absent. Ratio vs. Obiter: Ratio - Failure to comply with the apex court's directions requiring supply of information/material within the stipulated period defeats the validity of reassessment proceedings initiated without following Section 148A. Obiter - Comments on the scale of notices issued by Revenue and administrative oversight. Conclusion: The Revenue's non-compliance with the apex court's remedial directions (supply of information within thirty days and consequent opportunity to reply) precludes continuation of reassessment in the instant case. Final conclusion and relief Applying the amended limitation regime, the remedial character of the 2021 amendments (including Section 148A), and the apex court's directions on supplying information/material, The Court concludes that reassessment under Section 148 cannot be sustained in the present facts. The orders passed beyond the applicable period and in breach of the required procedural safeguards are interfered with and set aside; consequential demand notices issued pursuant to the impugned assessment are quashed.